By Jason Stern
The United States v. Windsor: WHAT ESTATE INEQUALITY MEANS TO YOU?
83 year old Edith Windsor had married her significant other in a 2007 ceremony in Canada. Edith Windsor had been with her then spouse for more than 40 years. In 2009 her spouse died. Both Edith Windsor and her spouse were residents of New York City. Being that Edith Windsor’s spouse died with more than $4,000,000.00 in estate assets, Edith Windsor was forced to pay more than $363,000.00 in Federal and State Estate Tax.
SO WHAT’S THE BIG DEAL?
The problem arises by virtue of the fact that Edith Windsor’s spouse was another woman, Thea Spyer. Currently, pursuant to the Federal Tax Code a married couple can pass $10,500,000.00 of estate assets without accruing any Federal Estate Tax liability while an individual can transfer $5,250,000.00. However, under the Federal Estate Tax laws in effect in 2009, while a married couple was entitled to pass $7,000,000.00 of estate assets to beneficiaries without any Federal Estate Tax liability, individuals were only allowed to pass $3,5000,000.00.
As such, at the time Edith Windsor’s spouse Thea Spyer died in 2009, Edith had to pay what amounted to a penalty of more than a third of a million dollars in estate taxes for no other reason than by virtue of her sexual orientation. Had the couple been legally married, which became legal to do in New York City in July of 2011, Edith Windsor would have owed nothing on Thea Spyer’s estate.
OR WOULD SHE?
In 2006, as States were starting to pass legislation adopting individual laws allowing same sex marriage, Congress passed the Federal Defense of Marriage Act. The law was an ultra conservative knee jerk reaction on the part of the House of Representatives to short circuit States’ same sex equality laws at the Federal level. DOMA as it is referred to, denies legally married same sex couples the ordinary rights afforded heterosexual married couples at the Federal level. As such, same sex couples would not be afforded any of the Federal tax benefits that accompany other married individuals under the act. This includes the Federal Estate Tax exemption also known as the Unified Credit.
That is until the Federal Defense of Marriage Act went up against an 83 year old named Edith Windsor. At issue attorneys for Windsor argued, is whether Edith Windsor’s Equal Protection Rights afforded every American under the United States Constitution were violated. To prove her case Edith’s attorneys must show that the Defense of Marriage Act prohibiting the Federal Government from recognizing lawful same sex marriages is not rationally related to a legitimate governmental interest.
As Americans we should all take issue with the legal impropriety imposed by this discriminatory act. However for myself, DOMA is not just a mean spirited piece of legislation but a New York estate lawyer’s worst nightmare. While same sex marriages are legally recognized in New York, how does a NY estate lawyer begin to plan a same sex couple’s estate without knowing the Federal Estate Tax implications? For instance, my heterosexual married clients are Federally exempt from estate tax for assets of $10.5 million dollars. While the Defense of Marriage Act directs the Federal Government to impose a different estate tax exemption on same sex couples, $5.25 million dollars, the amount allowed for single individuals. Therefore, there are two sets of tax code, one for heterosexuals and the other for homosexuals, separate but unequal.
For example, a heterosexual couple passes with $10,000,000.00 in their estate. Their Federal estate tax liability would $0.00, as they are exempt up to $10,500,000.00. However if a same sex couple passes with $10,000,000.00 in their estate, their estate would owe more than $4,000,000.00 in Federal Estate Tax alone. Even worse is the fear of the unknown. Up until now, as a New York estate attorney for same sex couples I am perplexed. While the State of New York recognizes my same sex clients as being married will the Federal Government afford these clients the same treatment? The honest answer is estate lawyers in NY and around the country have no way of knowing until this case is adjudicated.
You can see the Defense of Marriage Act is a dubious piece of legislation wreaking havoc on New York estate lawyers and their clients alike. To follow the rule of law one must know the rule of law and this antiquated legislation prevents that.
All indications show that the Supreme Court of the United States will strike down the portions of the Defense of Marriage Act at issue. Even the conservative swing vote, Justice Kennedy, agreed with his more liberal counterparts that this legislation must be overturned as not rationally related to any Governmental interest.
If you or a loved one are in need of New York estate planning guidance, call The Law Offices of Jason W. Stern & Associates for a free consultation at (718) 261-2444.